IT Spending Remains on Track with Expectations, But U.S. Economic Woes are Spreading to Other Regions

IT spending remained broadly in line with prior expectations during the first quarter of 2008, confirming a deceleration in some areas of demand in the United States. IDC believes the stagnant economy is still expected to drive overall IT spending growth down to around 4% in the U.S. this year, compared to last year's growth of 6%.

International demand continues to mitigate the impact of the U.S. slowdown to some degree, particularly in relation to favorable currency trends which have buoyed the reported earnings of U.S.-based vendors. Some tentative signs of weakening demand and indicators have emerged in Europe and Asia, however, and there remains an elevated risk of further downside patterns in the next three quarters. Worldwide IT spending is expected to increase by 5.7% this year on a constant currency basis, down from last year's 7.2%.

The first quarter results have not disrupted IDC's prior view on U.S. IT spending this year, with signs of softening demand in the PC market confirming that a broad-based but so far contained slowdown is in effect. We reaffirm our view which calls for hardware market growth in the U.S. of less than 2% this year, while software spending will increase by 7% and IT services by 5%. Strongest growth continues to come from back-end software (system infrastructure and application development tools), network equipment, and mobile devices. However, downside risks relating to macroeconomic weakness in the U.S. are expected to persist throughout the remainder of 2008.

International markets are also feeling the impact of the U.S. slowdown, to varying degrees. IDC has lowered its forecast for Western Europe to 4.1% growth in IT spending this year, and for Asia/Pacific to 5.4%. Manufacturing exporters and financial services firms are likely to be the hardest hit, and this will be reflected in adjustments to their short-term IT investment plans. Booming growth has continued in resource-based economies such as Russia and the Middle East, however, and IT spending in those regions is expected to continue its double-digit rate of expansion this year.

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